SHANGHAI—China’s stock market witnessed its most volatile session in over 15 months on Friday, as investors oscillated between enthusiasm for skyrocketing stocks and fear over the sustainability of a rally that has pushed up shares by nearly 20% over 12 sessions.
The roller-coaster ride, which saw the benchmark Shanghai Composite Index move in a 5.7 percentage point band during the session, came after the index produced its best one-day gain since 2012 on Thursday, adding juice to a seven-month rally that has made Shanghai the top-performing major market in the world this year.
Shortly after the opening bell, the market rose as much as 2.7% to score a fresh high in over 43 months, before tumbling 3.0%, all within the first hour of trading. It represented the wildest fluctuation for the index since Aug. 16, 2013, when a trading glitch caused the market move in a 6.6 percentage point range.
After narrowing losses before the midday break, the market roared back after lunch, with the Shanghai index finishing the day up 1.3%.
The combined trading volume on the Shanghai and Shenzhen markets rose 21% to an all-time of 1.051 trillion yuan (US$170.90 billion) on Friday from Thursday’s 869.2 billion yuan.
“I was totally breathless while watching it and although the market ended in the black, it was a bit traumatizing as it brought back the bad memories between 2007 and 2008,” said Ralph Lv, a 41-year-old retail exporter in Nanjing in eastern China.
Mr. Lv was referring to the Chinese market’s last massive boom-bust cycle, when the Shanghai index hit a record high of 6124.04 on Oct. 16, 2007, followed by a steep drop to 1664.93 on Oct. 28, 2008.
“The recent gains did help me achieve the break-even point for the stocks that I bought three years ago but to be honest, I am not sure I dare to enter the market now,” Mr. Lv said.
The Chinese market’s recent stellar performance has caught even the most bullish investors by surprise, with the Shanghai index jumping 4.3% Thursday to leapfrog India as the world’s top major performing index so far this year.
“The market appears to be in an irrational exuberance and is set to witness even greater volatility,” said Huang Cendong, an analyst at Sinolink Securities ,
“Although it has made conventional analytical frameworks irrelevant, the market’s upward momentum simply looks unstoppable now because it is purely driven by incredibly strong sentiment,” Mr. Huang said.
Despite a number of supportive measures by Beijing, ranging from an interest-rate cut to granting foreign investors unprecedented access to the Shanghai market, the current rally is in defiance of a slowing Chinese economy, weak corporate earnings and a struggling property sector.
The recent rally has been driven by the return of fast-trading small investors, who account for around 80% of all transactions in China’s stock market. Newly opened stock-trading accounts in China hit 370,071 last week, the highest level since the April 2011, according to data provider WIND Info. Much of the trading too is with margin trading where investors borrow to buy stocks, used to generate higher returns but brings bigger risks too.
This has already generated caution among some sober-minded investors.
“The recent sessions have been too volatile and so I would prefer retreating to the sidelines for a few days before finding a better entry point,” said Pan Yiyun, a Shanghai-based day trader.
--Amy Li contributed to this article.
Write to Shen Hong at hong.shen@wsj.com